DAVOS, Switzerland (Reuters) - Emissions trading should not be in the firing line of new banking regulations, said Stephen Green, group chairman of HSBC on Friday.

U.S. President Barack Obama last week proposed reforms, including regulation of proprietary trading where banks trade their own money and private equity investing by retail banks off their balance sheet in unlisted companies.

"There's a whole range of trading activities that are perfectly normal, legitimate, regular activities of the markets in support of economic and social development, and emissions trading is one of them," said Green, on the sidelines of a business and policy summit in the Davos Swiss ski resort.

"I don't think that will be characterized as proprietary trading, emissions trading is ... trading with clients. There is a debate to be had about proprietary trading (in other areas)."

HSBC on Monday invested $125 million off its own balance sheet in a private equity deal to support Better Place, a company which aims to roll out charging infrastructure for electric cars.

"It's exactly the kind of investment you want to see happen (to drive carbon emissions cuts) ... if we're allowed to continue to do that kind of thing," said Green, referring to prospective banking reforms.

"That's an investment we have made. Let's suppose commercial banks ended up not making investments in private equity, well, (low carbon businesses will) find other people making investments in private equity," he said.

Green was speaking on the sidelines of an event where six financial institutions underscored opportunities from investing in clean technologies, under a framework of "climate principles" launched in December 2008 to encourage such investment.

Banks say they are investing in cleantech despite a U.N.-led Copenhagen climate summit last month which failed to agree to replace the present Kyoto Protocol with a new, binding deal.

"We can't sit back and wait for that all-embracing accord that may one day emerge from the international governmental deliberations, we have to get going," said Green.

(Reporting by Gerard Wynn, Editing by Hans Peters)